At the start of the trading week, the US dollar was incurring losses. Thus, on Tuesday, February 9, the greenback is still weakening amid increased risk appetite and investors' concerns over early recovery of the US economy.
On Tuesday, the greenback fell sharply against the basket of currencies as investors were turning to risk assets. According to analysts, risk appetite significantly increased amid optimism in the global market. The rise is driven by the possibility of a rapid global economic recovery amid the rollout of the vaccination campaign as part of the fight against the COVID-19 pandemic.
Some experts suggest that there is another reason for stronger risk appetite in the market apart from the vaccination campaign. It is the recently approved $1.9 trillion rescue plan. There is a good chance that this measure will have great pressure on the US dollar. At this point, strong risk appetite has led to a drop in the price of the greenback to its lowest weekly level. In fact, there is more to come. Another reason for the price decline were investors' concerns over rapid recovery of the US economy. On Tuesday, February 9, the EUR/USD pair was trading in the 1.2080–1.2081 range.
According to experts, the cyclical nature of the market accounts for strong risk appetite. Oftentimes, the first year after recession is a good time for risky assets. As for risk-free bonds and the US dollar, the situation here is different. They are in the red zone. The overflow of liquidity in the market does not contribute to the strengthening of the greenback either.
Analysts assume that a weaker US dollar will be the top investment topic in 2021. They suggest that the American currency is overestimated. Thus, it takes a lion's share in the portfolio of global investors. Apart from that, the greenback is overrated by 6-11% against other currencies. A great number of experts believes that the US dollar will plunge by 8-10% in the first six months of 2021.
The possibility that USD will be substituted by other payment means also weighs on the American currency. However, many economists are sceptical about such a perspective, fairly suggesting that there is no substitution for the greenback. The only serious rival to the greenback is the euro. Nevertheless, it is unlikely to replace the US dollar. Moreover, the euro is currently considered to be a potential outsider of the global forex market according to experts. Nowadays, the entire financial system is based on the US dollar. Thus, some 80% of trade deals involve the greenback.
It will take decades to find a replacement for the greenback, experts say. Such a scenario will unfold only if an alternative reserve currency will be introduced, countries will make settlements in national currencies, and the United States will perform a less important role on the international stage. However, such a plan is unlikely to be implemented at the moment.
